Can Islamic FinTech Help To Power Western Economies?
Harris Irfan is Managing Director at Cordoba Capital and author of “Heaven’s Bankers: Inside the Hidden World of Islamic Finance”.
As a British Muslim, I am all too aware that Islam can be a scary word to many people in the UK and the US nowadays. But it need not be: in an age in which Islam and Islamic law, or Sharia, is increasingly demonized, I believe an economic model espoused by the principles of justice, equality and transparency has the power to unite people of divergent beliefs and create wealth at all levels in society. These principles are not unique to Islam; they are universal values that can contribute to a just, tolerant and progressive society.
An austere interpretation of Islam that has caused panic among some in the West is merely a recent phenomenon, one that runs counter to a history of transformation and inclusiveness, a history that is rarely taught in the West. That history encompasses over a millennium of legal development framed by a middle path and cultural context. Whilst Europe experienced its Dark Ages, the Muslim cities of Cordoba and Baghdad made momentous advances in mathematics, astronomy, medicine, art, architecture, agriculture and economics that are now often sadly unattributed. Just as Europe’s Renaissance borrowed heavily from Islamic philosophy, arts and sciences of the Middle Ages, so too had Islamic scholars borrowed and learned from earlier cultures, imbuing Sharia with an organic and fluid vitality that adapted to the demands of a changing world.
Post-colonial Islamic movements and an orientalist view of the world seem to have ignored a historical tendency for a more inclusive interpretation of Islam, one that co-exists with other cultures. At a time when the world is experiencing extremes of political and ideological thought, perhaps the Islamic economic model and the Islamic finance industry can help to bridge the gap between cultures.
That economic model is asset-backed and real economy based: finance is merely a lubricant for the creation of wealth at all levels in society. Money is to be treated as a medium of exchange and not a commodity to be traded. In theory this means that wealth cannot be created merely by the act of owning money: it must be invested in real industry, and share equitably in the risks and rewards. The financial economy is the real economy.
But the Islamic finance industry has a fundamental problem today: it is run substantially by conventional bankers and operates within a framework that expects Islamic banks to “reverse engineer” debt-based banking products. The UK is a perfect example of the challenge Islamic finance is experiencing: despite an enviable legal and regulatory framework supported by progressive UK governments, all five of the original British Islamic banks set up in the early 2000s are or have recently experienced significant restructuring to ensure their commercial viability.
This week I have written a white paper for Her Majesty’s Treasury entitled “Putting the City and the UK Economy Back on the Global Islamic Finance Map”. In it, I reject the commonly accepted rhetoric that London is a global centre for Islamic finance. It’s true that historic support by Her Majesty’s Government has helped to level the playing field for Islamic finance by, for example, removing double taxation on stamp duties. Such legal and regulatory reforms have in the past made the UK, and specifically the City of London, the envy of the Islamic finance world, with many other jurisdictions relying on talent exported from London to develop their own expertise.
However, London has fallen way behind. Attend any conference on the subject here and you can be sure senior politicians and industry executives will publicly play up the very many superb qualities that ought to attract the Islamic finance industry to the City, but ignore (willfully or otherwise) the domestic industry’s stagnation and its lackluster contribution to the UK economy. My white paper explores these areas of competitive weakness versus the real powerhouses of Islamic finance, like Dubai and Kuala Lumpur.
: 07 October 2017